ByMatthew E. Kahn, Guest bloggerFebruary 25, 2010

We know that the Olympics has a "causal" impact. It helped to beautify Seoul in 1988 and cleaned up Atlanta's air in 1992 and Beijing's in 2008. One fascinating economics study (available here ) documents the "coincidence" that when international natural disasters occur at the same time that the Olympics are taking that the U.S AID is more stingy in terms of offering disaster relief. The only plausible explanation for this fact is that the Olympics displaces interest in the rest of the world and what is going on elsewhere because we are glued to our TV or Internet feed watching Michael Phelps belly flop or watching that red haired dude (Shawn White?) do his wild hip flips on that ski thing.

But, what happens to the cities that host the Olympics. This NY Times article is worried that Vancouver is going to suffer quite a hangover. The article foreshadows doom and gloom from raised expectations that the Olympics would offer a spotlight on this great city but that ex-post that it would only leave a $1 billion dollar debt.

"Kennedy Stewart, a professor of public policy at Simon Fraser University in suburban Vancouver who has written extensively about the city’s politics, remains unconvinced that showing potential investors a good time during the Olympics will resolve Vancouver’s long-term economic issues. The forestry industry, once the mainstay of its economy, has been devastated by a beetle infestation, the collapse of the housing market in the United States and competition from South America. While motion picture production companies and software developers have set up shop here in recent years, they lack the same economic impact.

“What’s the substantive thing Vancouver has to offer other than its nice mountains and vastly overpriced real estate?” Professor Stewart asked. “The forestry industries have collapsed, so where is the money going to come from other than marijuana grow-ops?”"

Now, some of you may have forgotten that I offered my opinions on the bright future for Vancover 3 years ago. Here I repeat my "green cities vision";

Instead, the city's 21st-century downtown is very likely to be a mix of residences for highly skilled local professionals and second homes for rich people from elsewhere, along with a tight core of office space for high-end dealmakers and a scattering of services for all those groups of people.

"There's certainly a possibility that there's been a resortification in Vancouver," said Kahn, in an interview from San Francisco. "But why is that bad?"

The city currently has a moratorium on residential development in part of the downtown next to the central business district that was put in place after rising concern from business groups and commercial brokers that office space was under threat.

But Kahn said Vancouver could be evolving into what San Francisco already is -- an attractive downtown that is largely a home to the upper middle class.

"In San Francisco, no one is worried about its health."

He also pointed out that Vancouver is experiencing the same trends that have been documented in other North American cities. As the price of land goes up, firms leave their deal-makers downtown but move the bulk of their back-office work out to the suburbs.

Some cities, like San Francisco or New York or Vancouver, are then able to attract people to live in their "consumer downtowns."

And there's nothing wrong with that, says Kahn.

From an urban economist's point of view, it's an advantage to be able to attract skilled professional people to your downtown. Those people will then either accept slightly lower wages in order to work close to where they live, and firms that can save money on wages will be willing to spend it on the cost of space downtown. Or they will reverse commute to the suburbs.

From a public-finance economist's point of view, having about 15 per cent of residential space downtown taken up by second homes for wealthy people from elsewhere is also a benefit.

"It's a free lunch, with these people moving in, paying taxes, and demanding no services at all."

The businesses that remain downtown will be those that can survive with a minimum of space or the ones that keep their high-ranking people downtown while the rest of the work moves out to the suburbs.

"There's still a demand to be downtown for the power lunch," says Kahn. As well, there will be many jobs in the arts, culture and retail sectors that serve that downtown community.

Along with Kahn, others debating the future of Vancouver's downtown will be UBC professor Robert Helsley and Vancouver's planning director, Brent Toderian. It will be held Wednesday at UBC's Robson Square campus from 5 p.m to 7:30 p.m.

Tsur Somerville, the UBC professor who organized the panel, said he decided to tackle the topic because "people are concerned about what the downtown is going to look like." However, at the moment, the debate has been limited mostly to business groups arguing for more office space and residential developers arguing for more room to build condos.

"Urban economics tend to have a long view and a different perspective."

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